Jason Smith — Did the ACA decrease unemployment?

It is true that a lot of things went into effect at the same time, but using a typical Keynesian multiplier of 1.5 accounts for about half of the boom in the total number of jobs and the biggest increase in openings was in health care. That's a pretty consistent story.

Information Transfer Economics
Did the ACA decrease unemployment?
Jason Smith

Brian Romanchuk — The Case Against Growth And Stimulus

I was tempted to comment on Larry Summers recent post, but Brian has saved me the trouble and has done a better job of it.

Note to progressives: 

Growth is the outcome of optimization of available real resources including human resources. The aim should be optimizing available real resources rather than growth per se. Optimizing available real resources involves limiting the idling of resources including human resources, which are the most valuable resource a society and its economy have. 

Aim for full employment as a job offer for all willing and able to work and the output gap will be minimal and growth maximal. 

This means replacing the conventional monetary policy that uses unemployment as a tool to control inflation with a buffer stock of unemployed with fiscal policy based on functional finance and a buffer stock of employed using a job guarantee with the currency issuer acting as the employer of last resort with respect to funding. A currency sovereign always has the fiscal ability to employ all available real resources by creating the funding.

Bond Economics
The Case Against Growth And Stimulus
Brian Romanchuk

Lars P. Syll — The tiny little problem with Chicago economics

John Cochrane and Robert Lucas going off again. Government spending "crowds out" private spending. Bill Vickrey points out the mistake.

Chicago economics is a dangerous pseudo-scientific zombie ideology that ultimately relies on the poor having to pay for the mistakes of the rich. Trying to explain business cycles in terms of rational expectations has failed blatantly. Maybe it would be asking to much of freshwater economists like Lucas and Cochrane to concede that, but it’s still a fact that ought to be embarrassing. My rational expectation is that 30 years from now, no one will know who Robert Lucas or John Cochrane was. John Maynard Keynes, on the other hand, will still be known as one of the masters of economics.

Lars P. Syll’s Blog
The tiny little problem with Chicago economics
Lars P. Syll | Professor, Malmo University

Jérémie Cohen-Setton — Blogs review: Understanding the Neo-Fisherite rebellion

Neo-Fisherism is on the blogs again. The idea that low interest rates are deflationary – that we’ve had the sign on monetary policy wrong! – started as a fringe theory on the corners of the blogosphere 3 years ago. Michael Woodford has now confirmed that modern theory, indeed, implies the Neo-Fisherian view when people’s expectations are infinitely rational. For Woodford, this is however a paradox of perfect foresight analysis, rather than something actually relevant for monetary policy.

Monetarists will be monetarists. But if you want a quick summary of what's going on over there, here it is.

Bruegel
Blogs review: Understanding the Neo-Fisherite rebellion
Jérémie Cohen-Setton

Brian Romanchuk — Monetary Impotence And The Triumph Of The Fiscal Theory Of The Price Level

There has been an ongoing debate about how monetary policy interacts with the zero bound on interest rates. Paul Krugman has recently posted an article,"The Simple Analytics of Monetary Impotence (Wonkish)", in which he gives a simplified Dynamic Stochastic General Equilibrium (DSGE) model which he says demonstrates something about monetary policy when at the zero bound. When I look at the model, it appears that there are internal contradictions to his suggested solution. Instead, it appears that the model solution is determined by the Fiscal Theory of the Price Level (FTPL). When it comes to DSGE models, it appears that all roads lead to the FTPL….

Bond Economics
Monetary Impotence And The Triumph Of The Fiscal Theory Of The Price Level [wonkish]
Brian Romanchuk

See also, JKH, John Cochrane’s “Monetary Policy with Interest on Reserves”, at Monetary Realism

David Glasner — John Cochrane, Meet Richard Lipsey and Kenneth Carlaw

So [John] Cochrane wants to take this bickering out of the realm of punditry and put the conflicting models to an objective test of how well they perform against the data. Sounds good to me, but I can’t help but wonder if Cochrane means to attribute the academic ascendancy of RBC/New Classical models to their having empirically outperformed competing models? If so, I am not aware that anyone else has made that claim, including Kartik Athreya who wrote the book on the subject. (Here’s my take on the book.) Again just wondering – I am not a macroeconometrician – but is there any study showing that RBC or DSGE models outperform old-fashioned Keynesian models in explaining macro-time-series data? 

But I am aware of, and have previously written about, a paper by Kenneth Carlaw and Richard Lipsey (“Does History Matter?: Empirical Analysis of Evolutionary versus Stationary Equilibrium Views of the Economy”) in which they show that time-series data for six OECD countries provide no evidence of the stylized facts about inflation and unemployment implied by RBC and New Keynesian theory. Here is the abstract from the Carlaw-Lipsey paper.

David Glasner also cites Brain Arthur on complexity economics, for which he acknowledges MNE.

Uneasy Money
John Cochrane, Meet Richard Lipsey and Kenneth Carlaw
David Glasner | Economist at the Federal Trade Commission

JKH also posted today at MR on John Cochrane.

John Cochrane’s “Monetary Policy with Interest on Reserves”

David F. Ruccio — Piketty wars: episode III—revenge of the Right

 Phil Gramm and Michael Solon, John Cochrane, and Deirdre McClosky. 

Because liberalism is self-organizing and self-regulating, you know, like nature. May be not perfect but the best that nature could do with the resources at her disposal. Quit complaining and enjoy the prosperity. In liberal societies even the poor have TV's. Celebrate freedom.

Occasional Links & Commentary
Piketty wars: episode III—revenge of the Right
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

Warren Mosler — Comments on Professor John Cochrane’s "A Few Things the Fed Has Done Right"

Warren fisks John Cochrane's recent paper.

The Center of the Universe
Comments on Professor John Cochrane’s – A Few Things the Fed Has Done Right
Warren Mosler

Brian Romanchuk — The Fiscal Theory Of The Price Level And Chartalism

John Cochrane versus Abba Lerner.

Bond Economics
The Fiscal Theory Of The Price Level And Chartalism
Brian Romanchuk

Stephanie Kelton — Seeping into the Mainstream?

Scott Fullwiler spent part of the afternoon reading (and reacting to) a paper that John Cochrane just gave at a conference on central banking in Stanford, CA. I haven’t read the paper yet, but judging byScott’s reaction on Twitter, there’s lots to like about it. (Mostly because it appears to draw heavily from a broad swath of at least a decade of published work from MMTers.)

New Economic Perspectives
Seeping into the Mainstream?
Stephanie Kelton

Lars P. Syll — Fiscal policy — whipped out only as a last resort

Edward Harrison compares John Cochrane, Paul Krugman and Lars Syll and concludes that economics is ideological.

LS: "Is ideology only playing a role when it comes to fiscal policies? Hard to believe. As already Gunnar Myrdal argued 80 years go, ideology is all over all economists. Whether they are into monetary or fiscal policies is immaterial."

Fiscal policy — whipped out only as a last resortLars P. Syll | Professor, Malmo University

Guest Post — Ralph Musgrave: Dodd-Frank is useless, but try this…..

Dodd-Frank is useless, but try this…..

Ralph Musgrave

On the subject of Dodd-Frank, Richard Fisher, president of the Dallas Fed said, “We contend that Dodd–Frank has not done enough to corral TBTF banks and that, on balance, the act has made things worse, not better.” He’s right. So how do we dispose of bank subsidies?

Well it’s easy. In fact the way to do it is set out in three hundred words below (in contrast to the thousands of pages of Dodd-Frank and Basel III which fail to solve the problem). And, the system set out below has an additional bonus: it makes SUDDEN bank failures impossible.

Obviously any poorly run firm should be allowed to ultimately fail, but it’s the SUDDEN failures or RUNS ON banks that are the big problem. Anyway, the solution is as follows.

Bank creditors (depositors in particular) have to choose between two types of account. First there are checking or transaction accounts. Money in those accounts is NOT LOANED ON or invested. It’s lodged in a 100% safe fashion (e.g. at the central bank). And that means no interest for those depositors.

Second, depositors can put some of their money into accounts where the relevant money IS LOANED ON or invested.  Those “investment accounts” pay interest because the relevant money is being used. Moreover, depositors choose what’s done with their money. For example they could go for safety: e.g. have their money put into mortgages where the mortgagor had a minimum equity stake of say 20%. Or they could choose something more risky.

Next, the VALUE OF the stakes that depositors have in safe mortgages (or whatever they’ve chosen) varies with the value of the underlying assets (e.g. the mortgages). In essence, depositors buy into a mutual fund. Indeed Laurence Kotlikoff, one of the several people advocating this system, explicitly advocates mutual funds in this connection.
The net result is that there is no reason for any bank subsidy. The taxpayer WOULD STAND BEHIND transaction accounts, but since no risk is taken with the money deposited, there is minimal taxpayer exposure.

As to investment accounts or mutual funds, if a particular fund makes silly loans or investments, then all that happens is the value of stakes in the fund falls, just as it does at present when a mutual fund makes silly decisions. Those with stakes in the fund have little reason to run, in the same way as there wasn’t a catastrophic run on BP shares after the recent Gulf oil spill. And even if there is a run on a hundred mutual funds, that doesn’t have systemically disastrous results. As Mervyn King put it, “a sharp fall in equity values” does not “cause the same damage as a banking crisis”.

As to the impossibility of sudden bank failure under this system, George Selgin explained the reason very neatly. He said, “For a balance sheet without debt liabilities, insolvency is ruled out.”.

And that’s it. The solution in just over 300 words. And if you want to see the same solution set out by someone else, try this Bloomberg article by Matthew Klein, or this WSJ article by John Cochrane.

— Ralph Musgrave

Bill Black — Revealed Biases: Why MMT Critics Continue to Rely on Strawman Arguments

Economists of nearly every flavor believe in the concept of “revealed preferences.” What matters is not what people say they will do in a hypothetical situation, but what they actually do. Their actions speak more credibly than their words. In this column I announce a related concept: “revealed biases.”

Guess what's coming. Ouch. Bill has mastered the art of the smack down.

New Economic Perspectives
Revealed Biases: Why MMT Critics Continue to Rely on Strawman Arguments
William K Black | Associate Professor of Economics and Law at the University of Missouri – Kansas City

See also Randy Wray, Bill Black Blasts Lazy Critics of MMT at Economonitor

Randy quotes the best of Bill's smack downs and comments himself.

Lars Syll — The doctrine behind the Fiscal Cliff – so wrong, so wrong, it could only be invented in Chicago

How do smart people make stupid errors? Ideological blinders aka the cognitive bias called confirmation bias. And if they actually know better and are truing to make a weak case stronger, it is called "sophistry."

Lars P. Syll's Blog
The doctrine behind the Fiscal Cliff – so wrong, so wrong, it could only be invented in Chicago
Lars P. Syll | Professor, Malmo University